April 28 (Bloomberg) -- The U.S. and European Union will
impose new sanctions as early as today on Russian companies and
individuals close to President Vladimir Putin over the
escalating crisis in Ukraine, officials said.

“We will be looking to designate people who are in his
inner circle, who have a significant impact on the Russian
economy,” Deputy White House National Security Adviser Tony
Blinken said on CBS’s “Face the Nation” program yesterday.
“We’ll be looking to designate companies that they and other
inner-circle people control. We’ll be looking at taking steps as
well with regard to high-technology exports to their defense
industry. All of this together is going to have an impact.”

The seizure of international inspectors by pro-Russian
separatists last week escalated the crisis after Russia began
military exercises on Ukraine’s border where the North Atlantic
Treaty Organization says Putin has massed about 40,000 troops.
Ukraine’s southern air-defense forces are in “operational
readiness,” the Defense Ministry said yesterday on its website.

Among those who may be hit by sanctions is Igor Sechin, the
chief executive officer of OAO Rosneft, according to people
familiar with developments. Sechin is a Putin confidant.

EU Discussions

Representatives of the 28 EU states will meet today to
widen a list of people subject to asset freezes and travel bans,
an official from the bloc said over the weekend. The sanctions
will target 15 Russians in positions of power, another diplomat
said. Both asked not to be identified because of the sensitivity
of the matter.

“What we will hear about in the coming days is an
expansion of existing sanctions, measures against individuals or
entities in Russia,” U.K. Foreign Secretary William Hague told
Sky News television yesterday. “Already we have seen more than
$60 billion of capital flight out of Russia so far this year,
and serious falls in the Russian stock market. So no one should
underestimate the impact on Russia and Russia’s own interests of
continued escalation of this crisis.”

Russia has stoked tensions in Ukraine with “threatening”
military maneuvers and by “taking no concrete steps” to
implement an April 17 accord meant to calm the crisis, the Group
of Seven nations -- the U.S., the U.K., France, Germany, Italy,
Canada and Japan -- said in an April 25 statement.

Military Drills

Early this morning, a group of 30 gunmen seized a state
security building in the city of Konstantinovka, the press
secretary of the Donetsk regional police said by phone.

Ukraine’s foreign minister, Andriy Deshchytsia, said he
would travel to Vienna to discuss with international officials
Ukraine’s contention that Russia was not complying with the
Geneva agreement and that Putin’s administration was not
allowing monitors to observe its military drills.

“We are going to discuss today in Vienna the
implementation of the Vienna document that allow international
observers to monitor military drills that now have started near
Ukraine’s borders,” Deshchytsia told Bloomberg television
today. “Russia does not want to comply with it.”

In the wake of those capital outflows and a credit-rating
downgrade by Standard & Poor’s, Russia’s central bank
unexpectedly raised its key interest rate to 7.5 percent on
April 25.

Markets Sag

Russia’s Micex Index fell 1.38 percent to 1,262.46 by 11:39
a.m. bringing its loss this year to 16 percent. The ruble has
lost almost 9 percent this year against the dollar, the second-worst performance among 24 emerging currencies tracked by
Bloomberg after Argentina’s peso.

Sanctions previously imposed by the U.S., the EU, Canada
and other allies targeted a number of Putin’s associates and top
officials, as well as St. Petersburg-based OAO Bank Rossiya.

Executives at OAO Gazprombank, Russia’s third-largest
lender, are preparing for possible sanctions, two people with
knowledge of the deliberations said last week, while development
lender Vnesheconombank is taking precautions, according to a
person familiar with talks at the lender.

U.S. Senator Bob Corker of Tennessee, the top Republican on
the Foreign Relations Committee, called on President Barack
Obama to impose sanctions on four of Russia’s largest banks and
OAO Gazprom, the country’s gas-export monopoly.

Largest Banks

“Hitting four of the largest banks there would send shock
waves through the economy,” Corker said on CBS yesterday. “I
just think we need to hit him much more toughly,” he said of
Putin.

Some U.S. officials warn that broader sanctions, those that
affect ordinary Russians and not just the oligarchs in Putin’s
inner circle, may backfire to the Russian leader’s benefit.
Ordinary Russians would probably rally behind Putin and allow
him to blame the U.S. and its allies for the country’s economic
woes.

Three officials, all of whom requested anonymity to discuss
internal policy deliberations, said financial and other
sanctions are unlikely to deter Putin. His goals are to
destabilize Ukraine; ensure Russian domination of portions of
it, as well as the Transnistria region of Moldova; and make the
government in Kiev subservient to his.

China’s government said it did not support sanctions.

“We believe that sanction will not help solve the problem
but, on the contrary, escalate the situation,” Chinese Foreign
Ministry spokesman Qin Gang said. “Sanctions will not serve the
interests of any party.”

Coordinated Measures

The planned EU moves are not set to include broader trade,
financial and economic measures against Russia, known as “stage
three” sanctions. Hague said work on those is continuing.

“It’s going to be more effective if everybody signs on and
everybody’s committed,” Obama told a news conference yesterday
in Putrajaya, Malaysia. “We’re going to be in a stronger
position to deter Mr. Putin when he sees that the world is
unified and the United States and Europe is unified, rather than
this is just a U.S.-Russia conflict.”

In addition to sanctions, some U.S. Republican lawmakers,
led by Arizona Senator John McCain, are pushing the Obama
administration to send anti-tank, anti-missile and other weapons
to Ukraine’s military. Blinken, the White House adviser,
dismissed that suggestion, saying the administration focus is on
economic assistance.

Weapons “wouldn’t make a difference in terms of their
ability to stand up to the Russians,” Blinken said on CNN. The
U.S. will focus on “professionalizing” Ukraine’s military,
while stopping short of providing lethal aid, he said.

Meanwhile, pro-Russian separatists freed one international
observer from a group of 11 taken captive three days ago in the
eastern Ukrainian city of Slovyansk. Negotiators for the
Organization for Security and Cooperation in Europe left the
city following the release of the observer, a Swedish officer
who is diabetic, the Russian news agency RIA Novosti reported.